If you have made some wrong financial choices in the past, that doesn’t mean that you shouldn’t be given a second chance and a way to get back on your feet. And it doesn’t mean no one is willing to do so.
Conventional lenders such as banks or credit unions might decline candidates with poor credit reports because they don’t consider them trustworthy. Even a secured loan may be out of the question. Direct or online lenders may be more open to approving your application, but their terms won’t always be most favorable.
Here are some options to consider if you have bad credit and are looking to take out a loan.
Before You Apply
How do you know if you have bad credit?
Before you apply for a loan, you should know what you’re bringing to the table. Every U.S. citizen is entitled to a free credit report at least once a year, and also in a number of different situations, so you should use this right to get familiar with your situation.
You can apply for a free credit report online, by providing just a few of your personal details. It’s easy and quick, and it can be crucial for your loan application process.
When you know where you stand, you can work on improving your credit. How can you make your credit score better? It usually takes time, but taking the first step is important. It can show willingness to work on your money management skills and maybe make your lender rule in your favor.
What you can do is make your future payments on time, not quit credit cards you haven’t used, and not apply for new loans to avoid hard inquiries that can have a negative impact on your score. Also, go through your credit report and check every piece of information, because a potential error could cost you a lot.
What Are Your Options?
Poor credit may mean fewer options, but you still have some. What could represent an issue are less favorable terms. But if you take your time while shopping for a loan, you will probably find an offer that suits your needs and doesn’t force you into more debt.
Secured loans need to be backed with collateral.
As your credit is poor, even an understanding lender with special offers for people with bad credit history can’t take any risks, so you need to list an asset of yours as collateral that your lender can claim in case you don’t pay back the money you borrow. Installment loans for poor credit by direct lenders are very common today, as some lenders approve your application without looking into your credit report. If your credit is really poor, you’re more likely to get a secured loan.
Unsecured loans don’t need collateral, but are harder to qualify for. You may get it if you’re close to having a good credit score and don’t have too much debt. Also, bear in mind that the terms your lender will offer probably won’t be as decent as the ones for a secured loan. As the lender is making a risky move by not requiring collateral they could later claim as compensation, your interest rate may be higher and, sometimes, not affordable for you.
Peer-to-peer loans come from an individual, and not from a bank, union, or other financial institution. This is a widely popular lending practice, made possible through certain websites. Why would an individual lend their money to random people? The profit they make on interest charged may be better than what they would earn by just keeping their money in a bank.
Read the Fine Print
Whatever option you choose, make sure you carefully read all the details of the contract you’re signing. Some lenders are called predators, and there’s a reason for that. They will count on you being desperate and try to trick you into signing something you’re not really sure about.
When opting for a lender, do thorough research to ensure they’re trustworthy and valid. You can find online reviews about almost every company, so check other people’s experiences before you make the final decision. If the contract is transparent, chances are you have nothing to worry about and you can start building a better financial future.
Leave a Comment or Answer a Question Below: Have you ever been able to get a loan with bad credit? What did you have to do? How have you been able to repair your bad credit?
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